Understanding your Superannuation
So, what is super, and why do I have it, why should I care?
At Scientiam, we are here to share the knowledge and make sure all Australians have access to the facts and truth about their superannuation.
Superannuation is a 3 trillion-dollar industry and growing, so there are a lot of very interested parties in the game.
For each Australian that has a job, superannuation is a major asset and managing it well will be the difference between an “ok” retirement and a great retirement. It’s time to take a lot more interest in this important investment.
In these updates we will cover all areas of superannuation, you can also listen to our podcast or attend a weekly live zoom call. Log in to scientiam.com.au to find out more.
Today’s topic is an introduction to super – what is it?
Here is a bit of a summary of our podcast;
In Australia, superannuation, or just super, is the term for retirement benefit funds. These are also often referred to as pension accounts. The government also pays an aged pension so try not confuse the two!
Simplest way to explain super – it’s your savings for retirement.
Every time you are paid superannuation will be calculated and remitted to your super fund either monthly or quarterly. Most employers pay monthly and smaller employers quarterly. The due dates are listed below in table 1.
Tip 1 – make sure you check your super account at least 4 times a year to make sure the funds are received
Table 1 Source; Australian Tax Office
Where does the money go and can I have my own fund?
You can choose your super fund, although most Australians end up in a default fund when they start working. There are industry funds that used to be run by big unions but are now open to all Australians. These are now huge and you may have seen the advertisements.
There are also “retail” or funds run by financial institutions like AMP and MLC.
And yes, you can run your own fund as well. This is called a self-managed fund or SMSF. We will write and talk about SMSF’s a lot in this series.
The choices are for many overwhelming which is why many opt to unfortunately do nothing!
Millions of Australians have multiple accounts or lost accounts. There is approximately $14bn in lost super accounts! So, it’s worth checking if you have more than one account and consolidating your funds into one that suits your requirements. If you want to find out more go to scientiam.com.au ask a question and we can direct you to the best places to find your super.
Tip 2 – Work out if you have any lost accounts.
Visit scientiam.com.au for more on lost super and how to find out of you have more than one account.
Is my fund suitable for me?
We could write for days on this topic and will cover it in future episodes. The first step is to find where your current super is, work out how much you have and if you have any lost accounts. Step 2 will be to start to learn more about super and whether you should stay in your fund, move, or just change the investment mix. There is a lot to consider when changing fund.
How much is paid into my super?
Super started off in the 70’s as a defined benefit system which basically meant you received income when you retired based on your length of service and salary.
In the 1980’s more Australians were given access via a controversial deal with the government and unions to forego a salary rise and instead receiving 3% super. It was a tough call at the time but these politicians had great foresight. They could see that the government was not going to be able to pay out all these defined benefits amounts as the population aged. In the 1990’s the Keating labor government legislated for all Australians to basically be included in the system, which was groundbreaking at the time.
To this day, Australia has one of the largest and advanced retirement saving systems in the world.
So how much is paid?
Over many years the rates have changed starting at 3% and then jumping to 9% in the early 2000’s to now 10.5%. Soon it will be 12% by 2025.
12% of your salary! This is a huge incentive for all Australian to take much more interest in their superannuation.
Do I pay tax on super?
When your contribution goes into your fund you pay 15% tax, and 30% if you earn over $250,000 p.a.
That is called a contribution tax.
The money inside your super is invested and pays tax on its earnings at 15%.
When you retire and are over 60 you can draw down your super tax free, with a tax-free limit of $1.7m per account per person. So, a couple can have $3.4m in super tax free. That is not bad. If you have over $1.7m the funds can remain in super but will get taxed at 15% on earnings.
There are some other tax quirks and complications, but for today we want to keep it fairly simple and cover more detail in future episodes.
Can I contribute more than the 10.5%?
You can also contribute money from salary, savings, inheritances, business sales or a home sale into super. These contributions can be made as a salary sacrifice or you can make a tax-free contribution,
Here is a table outlining the contributions rates and history
In my podcast I ask if anyone knows why Norfolk Island has a lower rate? It’s because it was not until 2016 that super came in there, so they are playing catch up!
Trivia question for the week!
Superannuation Guarantee Rate
Table 2 Source; Wikipedia
You can also top up via a Salary sacrifices contributions
Since the 2021/22 financial year, the concessional contribution cap has been $27,500.
This is how much you can contribute personally via your employer or yourself and is tax deductible, but bear in mind that a 15% contributions tax applies
So, if your employer is contributing $10,000 you can personally elect to top up to $27,500. This is a great way to boost your super and can save tax, but it’s worth checking what is right for you first before you commit. Remember super can’t be accessed until age 60 for most Australians and its worth calculating if you will save tax, and work out if it’s better to pay off loans etc.
What is a non-concessional contribution?
This is a contribution made personally that is tax free. You can contribute $110,000 per annum. You can make this a 3-year contribution of $330,000 (and then wait 3 years to contribute again).
There are also ways to contribute via a business sale or property sale, we will cover those off in future episodes.
When can I access super?
As superannuation is money invested for a person’s retirement, strict government rules prevent early access to preserved benefits except in very limited and restricted circumstances.
Preservation age and conditions of release
To access their super, a member must also meet one of the following “conditions of release”
Before age 60, workers must be retired — i.e., cease employment — and sign off that they intend never to work again (not work more than 40 hours in a 30-day period). T
Those aged 60 to 65 can access super if they cease employment regardless of their future employment intentions, so long as they are not working at the time.
Members over 65 years of age can access their super regardless of employment status.
Employed individuals who have reached preservation but are under age 65 may access up to 10% of their super under the Transition to Retirement (TRIS) pension rules. [
Who governs super funds?
Superannuation funds are principally regulated under the Superannuation Industry (Supervision) Act 1993 and the Financial Services Reform Act 2002. Compulsory employer contributions are regulated via the Superannuation Guarantee (Administration) Act 1992.
Regulatory bodies that look over super
Four main regulatory bodies keep watch over superannuation funds to ensure they comply with the legislation:
- The Australian Prudential Regulation Authority (APRA) is responsible for ensuring that superannuation funds behave in a prudent manner. APRA also reviews a fund’s annual accounts to assess their compliance with the SIS.
- The Australian Securities and Investments Commission (ASIC) ensures that trustees of superannuation funds comply with their obligations regarding the provision of information to fund members during their membership. ASIC is also responsible for consumer protection in the financial services area (including superannuation). It also monitors funds’ compliance with the FSR. Money Smart is a website run by the Australian Securities and Investments Commission (ASIC) to help people make smart choices about their personal finances. They provide a number of tools such as the Superannuation Calculator.
- The Australian Taxation Office (ATO) ensures that self-managed superannuation funds adhere to the rules and regulations. It also makes sure that the right amount of tax is taken from the superannuation savings of all Australians.
- The Australian Financial Complaints Authority (AFCA)manages superannuation complaints from November 2018. AFCA manages complaints concerning financial products.
What is My Super?
MySuper is part of the Stronger Super reforms announced in 2011 by the Government for the Australian superannuation industry.
From 1 January 2014, employers must only pay default superannuation contributions to an authorised My Super product.
Conclusion
Given this is just meant to be an overview it’s amazing how quickly it can turn into a detailed analysis – and again why we are here to try and make this easier and more accessible.
If you like these subscribe to our podcast and log in to scientiam.com.au for more information
Nigel Baker
CEO & Founder of Scientiam
